Falling profits could trigger tax swoops, producers told
Falling profits could trigger tax swoops, producers told
MORE farmers could find themselves subject to Inland Revenue investigation because of falling farm profits, warn accountants.
A computerised system which identifies large fluctuations in profits automatically highlights this as a possible reason for investigation.
"The computer models are on the whole based on accounts produced from the 96 harvest," says David Missen, agricultural partner with Norfolk accountant Larking Gowen. In many cases, profits in the following set of accounts are likely to be much lower.
A letter accompanying accounts explaining the causes of the drop in profits, like changes in sale prices, cropping plans, livestock reconciliations and farm gross margins, may help to pre-empt an investigation.
Many businesses may also suffer cash flow problems since second instalments of 1997/98 income tax due in July are based on previous years profits.
For most, this payment is due before any harvest receipts have come in, and subsequent refunds can take time. But if profits appear to be well down, taxpayers may be able to have the payment reduced or eliminated, says Mr Missen.
In some cases it may also be possible to obtain an early refund if the advance payment made in January 1998 exceeds the final requirement.
"For those with year ends of Mar 31 or Apr 5, we hope to be able to recommend reducing the July payment on the basis of draft accounts, but in most circumstances the tax return must be in to be able to get the money back."
To achieve this, farmers must be well organised and allow the completion of accounts as soon after the year end as possible.
Suzie Horne